BL-2020-CDF-000003 - [2025] EWHC 2226 (Ch)

Most of the other central terms of the agreement are not in dispute. Mr Lloyd would carry out the construction works and would manage the Site. For this, he would be paid £20,000 per annum. (In fact, Mr Lloyd says that the agreement for this annual payment was made at a later stage, but the weight of the evidence is against him on that, and I reject what he says.) The expenses of running the Site would be deducted from the income, and the balance would be split equally between the two parties to the Joint Venture. The main issues to be addressed seem to me to be the following: (i) What was the nature of the personal obligation on Mr Lloyd? (ii) What was agreed in respect of the provision by Mr Lloyd of documentary evidence of his expenditure on the Site before the Joint Venture was agreed? (iii) Were payments of mortgage interest properly deductible as an expense of the Joint Venture before the division of profits? (iv) What was agreed in respect of the term and the termination of the Joint Venture?

The defendants’ pleaded case is that it was a term of the Joint Venture that Mr Lloyd would “personally devote all his working time, alternatively such time as was necessary, to the development and management of the Site.” At trial, Mr Healey advanced only the latter alternative (the obligation to devote such time as was necessary). Mr Lloyd’s Reply admitted that he had impliedly agreed “to devote such time as was necessary to perform his obligations pursuant to the Joint Venture.”

The agreed position on the statements of case clearly means that Mr Lloyd was required to devote his own time to the Joint Venture. He had responsibility both for the development of the Site and for its management, and his personal involvement was, in my view, understood to be necessary to the operation of the Joint Venture. Equally clearly, however, this did not mean that he could not engage others to carry out aspects of the work for him. Mr Hayward’s evidence was to the effect that, having little day-to-day involvement with the Site, he did not know precisely how Mr Lloyd discharged his duties, but he would not have objected in principle to Mr Lloyd appointing an agent to collect the rents and actually did agree to Mr George Lloyd carrying out the functions on a short-term basis. The important question, which I shall address below, is whether Mr Lloyd was unable to perform his obligations for a substantial period or to a substantial degree.

The defendants’ pleaded case is that there was a term of the Joint Venture that Mr Lloyd would produce evidence to substantiate the prior expenditure of £80,000 on works at the Site. Mr Lloyd’s Reply denies that there was any such term and avers: “At the time of entering into the Joint Venture the parties agreed that Mr Lloyd had already carried out works at a cost in the region of £80,000. At no time prior to these proceedings has either Defendant suggested that Mr Lloyd was contractually required to produce evidence substantiating that expenditure.”

I find that there was agreement between the parties that Mr Lloyd would produce the documentation to verify his expenditure before the Joint Venture commenced. It is not plausible, either as a matter of common sense or having regard to Mr Hayward’s commercial experience and evident hard-headedness, that the estimated round figure of £80,000 would simply have been accepted without the production of invoices. Further, the communications between the parties in May 2014 tend to confirm this conclusion. In his email of 27 May 2014 (quoted more fully above) Mr Lloyd said, “I have done what you asked and got invoices for SA1 totalling well over 80,000 so far which I spent in the time frame of March 2010 to Oct 2010 when you came on board and joined the venture. I think the final figure of invoices will come to well over 100k that I’ve spent solely in that period.” This was picked up by Mr Hayward in the meeting later that month; here I use the version produced by Mr Lloyd’s solicitors, which is clearer on this point. A short extract will suffice:

“RH You've got to, um, I mean when you say, um, I dunno, we’ve got invoices for SA1. I mean, you didn’t send me the invoices did you?

CL: What the, how do you mean? The ones, sent you them when?

RH: Well, you said in the first paragraph here [that is, of the email] ‘I've done that, what you asked and got what invoices for SA1 totalling well over £80,750’.

CL: Yeah. That's right.

RH: Um, ‘I think the final figure on the invoices like come to well over a hundred K’

CL: Yeah.

RH: ‘That I've spent certainly in that period, I can also show the re-mortgage and the loan’. But you didn't attach those invoices.

CL: Oh no, no, I haven't attached anything, no, I've said, just obviously saying to you obviously you’re not going to give me anything until you see, see all the paperwork but it’s pointless me bringing everything up to you and then you still saying well there’s this, that and the other. …”

On behalf of Mr Lloyd, Miss Dzameh pointed to Sirocco’s statutory accounts for the years ended 30 June 2012 and 30 June 2013, which showed Mr Lloyd as a creditor for £80,000 in respect of the building of units at SA1. Mr Hayward did not agree that this indicated acceptance that Mr Lloyd had in fact spent that amount of money. He said (to paraphrase) that this was by way of a provisional figure given to the accountant, Mr Symons, and that the actual sum spent would have had to be verified before there were any final settlement. Although the entry of the figures in the accounts does give pause for thought, I accept Mr Hayward’s explanation. In fact, there is an email from Mr Symons to Mr Lloyd on 19 June 2012, in which Mr Symons says that he is urgently preparing Sirocco’s management accounts for inter alia 2012 and needs to know what Mr Lloyd spent from his own funds on SA1. (He requested some supporting documentation, but he had a 24-hour deadline and there is no indication in the papers that he actually received documentation.) It is relevant that the £80,000 was shown in the accounts as a loan, which shows that there had been no settlement. The communications in May 2014 also show that Mr Lloyd was contending that his expenditure entitled him to payment out of the Joint Venture (that is, that he had not received a payment that credited him for it). The same communications also show Mr Lloyd’s acceptance that he did not expect to receive any payment on the basis of that expenditure without providing the documentation to substantiate it. His suggestion in evidence that no verification was required, because the figure had been accepted or because Mr Hayward had verified it independently, is not in my view supported by the objectively ascertainable facts.

At times in his evidence, Mr Hayward expressed himself as though the requirement for documentary evidence of the expenditure were a condition precedent to the very existence of the Joint Venture: indeed, he said in cross-examination, “He never showed me the invoices, so there was no joint venture.” That is clearly not the case and Mr Healey did not maintain any such contention.

Mr Lloyd’s case is that the expenses to be borne by the Joint Venture before the division of profits did not include any interest payments in respect of Sirocco’s loans secured on SA1: particulars of claim, paragraph 3.5.7. However, the defendants’ case is that “it was an express, alternatively an implied, term of the Joint Venture that the cost of servicing the mortgage lending was to be the first item deducted from the rent, before payment of any other expenses and before the split of the remainder between the parties.”

In his witness statement, Mr Hayward said at paragraph 40:

“It was agreed that all expenditure would be deducted before the profits would be divided 50:50. There was no limit to the relevant expenditure discussed, and in particular it was not agreed that mortgage interest would be excluded. We would not have gone into the joint venture if we had had to pay the interest. This was particularly so in that Craig Lloyd was getting a wage or priority return. I would not have agreed to interest being excluded, not least because that would have been a cost for Sirocco alone, he had no downside, only upside.”

This appears to mean that Mr Hayward understood mortgage interest payments to be included because they had not been expressly excluded when it was agreed that expenses would be deducted. But Mr Hayward’s oral evidence made clear that not only was mortgage interest not mentioned expressly but Sirocco covered the entirety of the mortgage interest in the first year of the Joint Venture and the need for the Joint Venture to bear the interest payments became apparent only later. He said (according to my note, which is not verbatim but believed to be accurate): “I didn’t discuss the costs of the mortgage at the time when we made the agreement, but it became clear that we couldn’t afford to carry on unless the mortgage interest was borne.”

The documents confirm Mr Hayward’s oral evidence, at least as to the sequence of events. The manuscript note made by Mr Coates on 26 October 2010, probably to record what he was told in a meeting with Mr Hayward, says, “so all expenditure (rates utilities etc) covered by JV”; there is no mention of mortgage interest payments, though those would have been significant. The final, but still incomplete, draft agreement prepared by Mr Coates in late 2010 shows “Agreed Expenditure” as a defined expression; there is no typed text next to it, but in manuscript is written, “incl. insurance & service charge agency fees rates water maintenance of units”: again, there is no mention of mortgage interest. The first mention of mortgage interest in the documents is in Ms Crickmore’s draft, apparently from 2011, when it was recorded that the first £80,000 would be paid to Sirocco to cover interest.

On 10 September 2012 Mr Symons, an accountant employed by RHP, sent to Mr Hayward, Mr Athay and Ms Crickmore a revised projection of the finances of the Joint Venture for the following twelve months. The email to which the projection was attached reads as follows:

“This is my final adjustment to this projection at least today.

It’s been decided to charge the Joint Venture interest based on the square footage of the total site. According to Kane’s schedule the joint venture total space is 67.98 % of the site. Therefore, based on my interest projection the joint venture will pay for 67.98 % or £ 89921.

All other assumptions remain the same:-

…

Annualised rent for September 12 is £ 271712.

…

Drawings:-

1^st £ 20000 to Craig Lloyd spread evenly over the year.

50% share in the surplus thereafter.

Surplus is calculated after deducting the Cap Ex on each new unit built.

Surplus is after deducting £88921 of loan interest projected per annum

Projected drawings Craig Lloyd - £ 74352 pa

Projected drawings RHP - £ 54352

Ability to pay drawings depends on Sirocco company cash liquidity.”

Again, on 7 November 2013, Mr Athay sent an email to Mr Symons, copied to Mr Hayward, with the subject line, “JV with Criag (sic)”. The attachment, titled “Sirocco Status as at 6th October 2013 Kane Updates”, was a Profit & Loss forecast for the coming 12 months. The notes on the deductions included this:

“JV Interest is based on £89921 allocated to Joint Venture – Richard decision 12 mths ago”.”

These are purely internal documents for RHP, but I note the following points. First, Mr Hayward had decided (a) to deduct mortgage interest before arriving at the surplus for distribution and (b) to apportion the deductible interest on the basis of the area of the Joint Venture Site as a proportion of the entirety of SA1. Second, it appears that the decision on apportionment of interest was the reason for the revised projection, so it is likely to have been in the nature of a new instruction to Mr Symons. Third, it does not follow that the deduction of mortgage interest was itself a new matter, though it might have been. Fourth, the documents say nothing about what had been agreed with Mr Lloyd. (I mention, also, the fact that the projected drawings are those of Mr Lloyd and RHP. This could support the inference that Mr Hayward was the other party to the Joint Venture. However, Mr Symons’ projection itself is headed in the name of Sirocco and the operations of Sirocco were in reality almost entirely in the hands of RHP as managing agent. I have not regarded this as providing significant support for Mr Lloyd’s contention that the Joint Venture was with Mr Hayward personally.)

Ms Nicola Smith’s evidence was that she was present at a meeting when Mr Hayward told Mr Lloyd that the Joint Venture would have to start contributing to the interest payments in respect of the loan with which SA1 had been purchased. She thought that the meeting took place about a year after Mr Hayward and Mr Lloyd started working together, and she expressed the view that Mr Hayward had “just moved the goalposts” because he saw that the project was generating lots of money. Ms Smith said that Mr Hayward had “sold” the requirement to Mr Lloyd on the basis that the mortgagee was increasing the interest payments and threatening to call in the loans and that the Site was at risk of repossession. She acknowledged that there were indeed a number of loans “coming up to fruition” but she doubted that the mortgagee would have called them in.

In his oral evidence, Mr Lloyd accepted that he had indeed agreed that the Joint Venture should bear pro rata responsibility for the mortgage interest payments; he said, “I didn’t want to agree it, but I did.” That was consistent with what he had said in the meeting at the end of May 2014. The position is therefore fairly clear in outline. At the outset there was no mention of mortgage interest. If it had been intended that the Joint Venture bear mortgage interest payments, they would have been mentioned; I reject the contention that they were included because not expressly excluded. The mortgage interest was a substantial liability and it stands on a quite different footing from liabilities that are, in the ordinary course, necessary incidental to the occupation of land, such as rates, insurance, and utilities. Mr Hayward clearly understood this and did not seek to pass the interest payments on to the Joint Venture until the Joint Venture had been in operation for some time.

The precise date when agreement on the point was reached is unclear. Ms Crickmore’s draft agreement from 2011 might indicate that the point was raised at some time that year, probably towards the end of the year. However, I bear in mind that the document was an internal document and was not shown to Mr Lloyd. Mr Symons’ projection in September 2012 and Mr Athay’s forecast in November 2013 refer to a decision taken in about September 2012. Mr Lloyd’s witness statement (paragraph 52) says that there were “heated discussions” in late 2012 or 2013 when Mr Hayward started taking interest payments out of the Joint Venture account. The most likely conclusion, in my view, is that Mr Lloyd’s agreement to the interest payments being treated as deductions under the Joint Venture was in late 2012 but that it involved acceptance of the interest payments already made. I do not know when the interest payments from the Joint Venture account began.

In closing oral submissions and subsequent written submissions, Miss Dzameh submitted that Mr Lloyd’s subsequent agreement that the Joint Venture should bear mortgage interest payments was voidable as being the result of economic duress. She said that Mr Lloyd had been in a “financially awkward position” that had left him no option but to agree to the interest payments, and she pointed to his remark in the second meeting in May 2014 that he had not wanted to agree to the interest payments. Mr Hayward’s insistence that mortgage interest be paid involved an implied threat to break the Joint Venture agreement and was not a legitimate form of commercial pressure.

Mr Healey observed that no such case had been pleaded, though he made clear that he was not taking a pleading point. However, the absence of a pleaded case does create real problems, because none of the salient matters had been raised at all. The particulars of claim merely allege the deduction of interest payments in breach of the Joint Venture agreement (paragraph 5). The reply denies the existence of any express or implied agreement to bear interest payments (paragraphs 4.7 and 4.11). The statements of case do not say anything about any threat, the illegitimacy of any threat, any agreement procured by pressure or any causal potency of the pressure. This is important, because the case did not proceed on the basis that the reasons and justification for any demand by Mr Hayward or any agreement by Mr Lloyd were in issue. As a result, these points were not properly explored.

I reject the submission that Mr Lloyd’s agreement in respect of interest payments is to be avoided on the grounds of economic duress. First, although Mr Healey did not wish to take a pleading point, it is an entirely unpleaded case, and one moreover that was not even mentioned until the evidence was completed. I do not refuse to entertain the argument for this reason—perhaps, if objection had been taken, Miss Dzameh would have applied to amend—but I repeat that the lack of pleading has made it difficult to explore the point properly, which has consequences for Mr Lloyd’s ability to establish the case now advanced. Second, I am not persuaded that Mr Hayward made any threat, express or implied, to break his agreement with Mr Lloyd. He simply insisted that financial pressures on Sirocco made it unaffordable for it to bear all of the interest while receiving only half of the rent. Third, I am not persuaded that any pressure brought to bear by Mr Hayward on behalf of Sirocco was illegitimate. The financial realities that obtained at the time, specifically regarding the position of the mortgagee, have not been explored in any detail, either by witness evidence or more importantly by documentation, and it is not apparent to me that Mr Hayward was wrong to say that Sirocco could not meet its obligations to the mortgagee, and thereby continued to perform the Joint Venture, if it had access to only half the rental income. Fourth, I am not persuaded that Mr Lloyd was coerced into agreeing that the Joint Venture should bear the interest payments, in the sense of having no practical alternative but to agree. (See Morley v Royal Bank of Scotland [2021] EWCA Civ 338 at [52]-[53].) If Mr Lloyd considered Mr Hayward’s position to be unmeritorious, he could have said that this was not what he had agreed and that Sirocco had the benefit of the loan and should pay the interest. If he recognised the merit of Mr Hayward’s position, however, the likelihood is that his agreement was voluntary, motivated by a matter of perceived practical fairness, rather than the result of coercion, even if the agreement were reluctantly given. Fifth, if I had thought that Mr Lloyd acted under economic duress, I should nevertheless have considered that he had lost the right to avoid his agreement. The agreement was made, probably, in the latter part of 2012. In 2014 and 2015 Mr Lloyd was robustly challenging Mr Hayward regarding the moneys he said had been withdrawn from the Joint Venture and the moneys he said he was owed. Whatever the position regarding termination of the Joint Venture, he cannot in my view reasonably be supposed to have remained under any duress at that point. (If the Joint Venture had ended, the position is a fortiori.) Even on Mr Lloyd’s own case, the Joint Venture ended in about September 2017. He instructed solicitors the following month and they sent a letter of claim to Mr Hayward in 2018. Before closing submissions, he never claimed to avoid the agreement to deduct interest payments and, indeed, consistently denied the existence of any such agreement. I agree with Mr Healey that it has long since been too late for the agreement to be avoided.

Mr Lloyd’s evidence was as follows (witness statement, paragraph 29): “Because the lease I had been discussing with LSH was for 15 years, Richard said that the JV would be for longer than the lease; he didn’t say an exact term, but it said that it would be more advantageous to do the deal with him than signing the lease – he was trying to make it an attractive deal to me.”

In his witness statement, Mr Hayward said, “It was intended that the joint venture would go on for a period of time, a minimum period of five years in my mind” (paragraph 44). That is a statement of one party’s understanding; it does not in terms assert that any minimum period was actually discussed, though it might perhaps imply it. In cross-examination, Mr Hayward said, “We did not agree a 15-year term. We agreed a 5-year term.” Mr Athay too denied that there was any agreement for a 15-year term and, indeed, said that he could not recall any discussion about how long the Joint Venture would last: “It was relatively fluid. We would just see how it went.” He accepted that there might have been discussions between Mr Hayward and Mr Lloyd to which he was not privy.

The possibilities are that nothing was said about a term or that there was mention of a specific term. I think it inherently improbable that nothing at all was said: Mr Lloyd would have wanted some assurance that a joint venture would be worth something to him, and Mr Hayward plausibly says that he had thoughts on the matter. The weight of the evidence suggests that there was no mention of a 15-year term: indeed, no one says that there was express mention of a 15-year term, and I very much doubt that Mr Hayward would have been willing to commit to such a term in such an agreement. (The Joint Venture was not similar in nature to a lease, so the term of one is not an indication of what parties are likely to agree in the other.) Although Mr Hayward might have said that a joint venture would be more advantageous to Mr Lloyd than taking a lease, it seems unlikely that he said that the joint venture would be for longer than the lease, while not explaining what he meant. Although confidence cannot be achieved, I think it likely that Mr Hayward mentioned a minimum term of 5 years with a minimum notice period of 3 years, and that this was the basis of the agreement. This accords broadly with Mr Hayward’s evidence, and it gains some support from Mr Coates’s draft agreement, albeit that the draft was not shared with Mr Lloyd.